Beware of Amazon Becoming the Fourth Carrier

Amazon.com Inc.’s  interest in buying prepaid brand Boost Mobile owned by Sprint Corp. may help to push through the stalled $26 billion T-Mobile-Sprint merger, but it may not be the boon the telecom carriers had in mind.

Amazon entered the picture as a potential buyer of Boost Mobile after Sprint announced that it will  sell the prepaid brand as a condition to gain approval for the T-Mobile-Sprint merger from the Federal Communications Commission (FCC) and recommendation from the Department of Justice that the carriers lay the groundwork for an entirely new carrier to emerge for their deal to be approved.
While Amazon has not confirmed or denied reports, the e-commerce giant’s interest in Boost is squarely centered on access to use the new T-Mobile’s wireless network for at least six years, according to Reuters.
Boost is valued between $3 billion to $4.5 billion and was Sprint’s only prepaid brand to add new customers in 2018. Boost delivered nearly 600,000 net additions almost as much as the 710,000 postpaid additions Sprint added during the same period last year.
Amazon can use the Boost network to offer discounts for Prime subscribers who sign up for mobile services.  Amazon is also likely to leverage the mobile spectrum to provide connectivity to its Alexa-enabled devices and enhance its last-mile services via drone delivery, according to analysts.
While an entree into the mobile industry will enable Amazon to add more users to its existing ecosystem and enhance existing operations, it’s the company’s potential long -term aspirations which have substantial implications for the wireless market.
Access to T-Mobile’s network would give Amazon an inroad to becoming the industry’s fourth carrier and ultimately take advantage of the next-generation of 5G networks.
“The market assumes Amazon wants to become a wireless carrier itself, but that thinking is too small. Amazon’s larger motivation could be that it expects 5G to be integral to cloud services in the future for industries like healthcare and autos, which will use 5G-enabled devices,” noted Colby Synesael, senior research analyst at Cowen.
If Amazon can control both the wireless network and the cloud, it can sell a full suite of products to customers who want to build 5G services, which would give it a massive advantage over cloud provider competitors like Microsoft and others.
But not all analysts agree the move is a good one.  The prospect of Amazon entering the wireless industry is economically insane, stated Craig Moffett analyst at MoffettNathanson, noting that the sheer costs of building a national network have already exceeded $100 billion for Verizon and AT&T in the last decade alone.
“The idea that Amazon would actually want to enter the wireless market is bad enough,” the analyst said in Friday’s note. “Over its now forty-year history, the wireless industry has never generated a return on invested capital meaningfully in excess of its cost of capital. And that’s before the entry of a player like Amazon.”
Amazon could also easily take aim at dominant telecom industry players AT&T,  Verizon and a potential newly merged T-Mobile  analysts say.

If Amazon was to buy Boost or some of Sprint’s airwave licenses, it could quickly become even larger by buying more spectrum from Dish Network or the prepaid wireless services owned by American Movil, TracFone and Straight Talk spelling disaster for the existing telecom industry players according to Walt Piecyk analyst at BTIG Research.
“An Amazon deal could be a disaster for the wireless industry,” Piecyk notes. “If Amazon came away with some hard assets it would cast a long shadow over the wireless industry, and possibly jump start movement by Amazon after the years of discussions and testing they have done in wireless.”